MAD COW DISEASE IN THE UNITED STATES: ECONOMIC EFFECTS

MAD COW DISEASE IN THE UNITED STATES: ECONOMIC EFFECTS; Businesses Tied to Beef Expect to Feel a Pinch

By CONSTANCE L. HAYS

Published: December 25, 2003

The rising concern about the safety of American beef will most likely dent the business of supermarkets, meat processors and others involved in its sale and distribution, experts said yesterday.

Cattle futures dropped immediately yesterday at the Chicago Mercantile Exchange, said James E. Brooks, floor operations manager for R. J. O'Brien, the nation's largest cattle futures trader. Trading in February cattle, the most active group, was halted after prices fell 1.5 cents a pound, the maximum allowed in a single session, to 89.175 cents. The markets are closed today, and when trading resumes tomorrow, the limit will be raised to 3 cents in an unprecedented step to determine the true price. It will rise to as much as 5 cents on Monday if the decline continues, Mr. Brooks said.

''It's an emergency action,'' he said of the wider limits. Trading was ''stressful,'' he added, particularly for Christmas Eve. ''There was a lot of concern, a lot of nervousness and a lot of people who just aren't sure what this is going to mean for the future. This is the biggest disaster that's been feared for a long time among many participants in the cattle market.''

With several nations banning imports of beef from the United States, producers have lost 10 percent of their market, at least in the short term, said Leonard Teitelbaum, a food analyst for Merrill Lynch. About half of that is exported to Japan, and the rest to South Korea, Mexico and other countries. Consumer prices in the United States are likely to continue falling until import restrictions end.

It is also unclear whether American consumers will reach for beef or will turn instead to other protein sources like pork or poultry, Mr. Teitelbaum added.

The National Cattlemen's Beef Association, a trade group representing about 95 percent of the country's ranchers, held a conference call yesterday to answer questions about the situation.

''Our export market affects us by about 12 to 15 cents a pound,'' said Terry Stokes, the group's chief executive, who has a herd of Brangus cattle near San Antonio. ''It's hard to ignore a part of the industry that takes 10 percent of your production.'' Beef producers had been having a banner year, with demand and prices up after a long, lean period.

The cattlemen's group has petitioned the government to intervene on the ban, Mr. Stokes said, and he said he was sure it would.

''Our producers are concerned,'' he said, ''but they're confident that we have a government and an industry that is addressing this issue.''

Among the ranchers' worries are the value of their investments and the image of beef going forward.

Public reaction has not yet been overwhelming, beef industry officials said. At the Albertsons supermarket headquarters in Boise, Idaho, a hot line set up to answer shoppers' concerns received just 20 calls yesterday, said Karianne Cole, a spokeswoman. But that is probably just the beginning, she added.

''Obviously, that will increase as this unfolds,'' she said. ''This is a critical issue for us. Our No. 1 goal is to make sure our customers understand that we always offer safe, high-quality foods.''

The market values of companies with significant stakes in the beef business, either as processors or producers, will be hurt in the short term, even if profits are not affected, Mr. Teitelbaum said. ''What will determine this is how long the concern lasts,'' he said.

Among the companies with major exposure are Tyson Foods, which has about 49 percent of its business in beef and the rest in pork and chicken, he said. Tyson acquired IBP Foods, a large beef producer, last year. A spokesman for Tyson did not return calls seeking comment. Other food processors, among them ConAgra Foods, also handle beef, which they turn into products like frankfurters.

American consumers remain a wild card. ''The demand curve is what has to be looked at,'' Mr. Teitelbaum said. ''If people decide they would rather not buy their protein requirement in red meat and switch to other products, then those producers would be the beneficiaries.'' He added that it was unclear whether demand would drop and remain low or drop and then rebound.

''We think this is going to take at least several weeks to play out,'' he said. ''Then the market will have time to digest it.''

At Swift Foods, a privately held company that bought beef-processing plants from ConAgra last year, answering questions about food safety was the main order of business for executives all day yesterday.

''We have been vigilant in our own monitoring of cattle,'' said Jim Herlihy, a spokesman. ''We buy live cattle, we slaughter it, we process it from there. We disassemble the carcass into the primary muscles, and we do grind some beef and sell beef trimmings to others.''

For some time, Mr. Herlihy added, Swift has not used meat taken from near the spinal column of an animal. That material, he said, is sold for rendering into ''nonfood products.'' Meat taken from that area, in a process known as advanced meat recovery, is thought to have the highest risk of contamination if an animal is infected with B.S.E.

In addition, Swift does not process any cattle that is classified as ''downer,'' meaning it cannot walk on its own when it arrives at the slaughterhouse. Animals unable to leave the truck are returned to the supplier, Mr. Herlihy said, and those that become unable to move after arrival are killed and sent to landfills.

The company monitors cattle feed after animals arrive in its feed lots, before slaughter, and requires suppliers to sign affidavits stating that they were fed according to standards, which prohibit the use of bone meal and animal byproducts in the feed.

Meanwhile, beef's natural competitors are awaiting more information. Richard Lobb, a spokesman for the National Chicken Council in Washington, said he could not comment on the effect of the situation on his members, who include most of the chicken producers and processors in the country. ''We're going to wait and see what happens,'' he said.